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Michigan Addresses Where the Benefit of Services Is Received for Tax Apportionment

On October 16, 2015, the Michigan Department of Treasury released Revenue Administrative Bulletin 2015-20 explaining where the benefit of services is received with regards to corporate income tax. In general, the sales from the performance of services should be sourced to Michigan if the recipient of the services receives the benefits of the service in Michigan. Michigan goes on to explain that sales from the performance of services are in Michigan and attributable to Michigan as follows:

  • All receipts from the performance of services are included in the numerator of the apportionment factor if the recipient of the services receives all the benefit of the services in Michigan; and
  • If the recipient of the services receives a portion of the benefit from the service in Michigan then the portion attributable to the benefit received in Michigan is included in the numerator of the apportionment factor.

The bulletin also provides guidelines to determine when, in the above two scenarios, all or a portion of the benefits are received in Michigan. For example, all the receipts from a service that relates to the use of intangible property such as custom computer software, licenses, designs, processes, patents, and copyrights which are used entirely in Michigan should be sourced to Michigan.  Conversely, if the services relate to one of these situations and are used in Michigan and one or more other states, than the portion of sale should be sourced to Michigan to the extent it is used in Michigan.

For more information regarding other sourcing guidelines, and what to do when a taxpayer cannot determine where the recipient of the service received benefited, please click here to view the bulletin.

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